Bitcoin is soaring because a hard fork has been averted

Bitcoin hit a high of $7,879 today (Nov. 8), a new record high, minutes after one faction of the community that had been pushing for a hard fork, which would have doubled its transaction capacity, announced that it would abandon its effort.

The chief executives of a number of prominent bitcoin companies, including Xapo, Bitmain, and Blockchain.info, signed off on a letter today saying that the effort to fork bitcoin, called Segwit2x, would be called off because it would “divide the community.” The letter was posted to the Segwit2x mailing list. “Continuing on the current path could divide the community and be a setback to Bitcoin’s growth. This was never the goal of Segwit2x,” the letter, signed by six CEOs, said.

The bitcoin world has been riven by infighting over how to increase its transaction capacity, or how to scale the cryptocurrency. One faction envisions bitcoin acting as a decentralized payments platform, allowing people to pay for their daily coffee, for example, with bitcoin. But because bitcoin’s transaction capacity is so small—roughly seven transactions per second—the technology can’t be used for that without charging increasingly higher transaction fees. The opposing camp views bitcoin as a type of digital gold, meant for storing in a vault rather than used to pay for coffee.

Bitcoin, which was trading as low as $7,078 today, shot up to $7,879 after the letter was published. The Segwit2x proposal would have doubled bitcoin’s transaction capacity, which most bitcoin users believe is necessary. The proposal was contentious because of the way the changes would be imposed, which would have changed the “block size,” a cap on bitcoin’s transaction rate set by its creator, Satoshi Nakamoto. Opponents to Segwit2x argued that this change would alter bitcoin’s essential character too greatly, and place too much decision-making power in the hands of miners and heads of big companies in the industry, because the protocol would have been altered at their say-so.

Bitcoin has already forked twice this year, creating the bitcoin cash and bitcoin gold cryptocurrencies. Neither has threatened the dominance of the original chain because they have not attracted enough investors. But the Segwit2x fork was seen as a credible threat to the original bitcoin chain because of the amount of industry support behind it.

The abandonment of the Segwit2x fork is a major victory for proponents of bitcoin as a kind of digital gold by maintaining the status quo. But it risks limiting the cryptocurrency’s usefulness as a payment mechanism, as the number of transactions rise and the network struggles to process them in a timely and inexpensive manner.